What Happened?
Shares of creative software maker Adobe (NASDAQ:ADBE) fell 13.2% in the morning session after the company reported underwhelming fourth-quarter (fiscal Q1 2025) results, as remaining performance obligations (RPO - leading growth indicator) fell short of analysts' estimates. That, plus the fact that full-year (fiscal 2025) revenue and EPS guidance were just in line with estimates, signaled a lack of near-term momentum. Wall Street likes to see companies beat and raise, and this wasn't impressive. Adding to the weakness, growth trudged along in the quarter rather than accelerate. Overall, this quarter was mixed. The stock's reaction suggested markets were expecting more.
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What The Market Is Telling Us
Adobe’s shares are not very volatile and have only had 6 moves greater than 5% over the last year. Moves this big are rare for Adobe and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 9 months ago when the stock gained 17% on the news that the company reported a “beat and raise” quarter. First-quarter earnings results beat analysts' revenue, remaining performance obligations (RPO – leading revenue indicator), and EPS expectations. These beats were driven by massive outperformance in its net new Digital Media ARR (annual recurring revenue), which clocked in at $487 million (vs estimates of $434 million). Thanks to the strong results, Adobe upgraded its full-year net new Digital Media ARR and EPS guidance, sending the stock price higher. .
Its revenue guidance for the next quarter missed Wall Street's estimates, but that didn't matter too much because the market cared most about its digital media segment. Overall, this was a great quarter that put a big dent in the bear argument that ADBE’s best days were behind it due to increased competition.
Adobe is down 14.3% since the beginning of the year, and at $377.89 per share, it is trading 35.6% below its 52-week high of $586.55 from September 2024. Investors who bought $1,000 worth of Adobe’s shares 5 years ago would now be looking at an investment worth $1,126.
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